VW betting big on electric vehicles
Volkswagen is rolling out what it bills as the breakthrough electric car for the masses, the leading edge of a wave of new battery-powered vehicles about to hit the European auto market. The cars are the result of massive investments in battery technology and new factories driven by environmental regulation and concerns about global warming.
But it’s not at all clear whether consumers are ready to buy them.
Electric cars remain a niche product with less than two per cent of the market due to higher prices and worries about a lack of places to charge. It adds up to a risky undertaking for the companies.
“The industry has spent billions developing its new generation of electric vehicles,” wrote analyst Max Warburton at research firm Bernstein. “Clean sheet designs with dedicated platforms ... have been engineered at great cost. Battery pack assembly plants have been built. Huge cell supply contracts with Asian suppliers have been signed.”
“But this money is being spent without convincing evidence that customers are waiting for these cars.”
Volkswagen is betting that the ID.3, with a roomy interior, brisk acceleration and battery range of up to 550 kilometres (340 miles) for the top model, will change things. The company argues that the base price of under 30,000 euros ($33,000) means the ID.3 is “an electric car for everyone.” A key competitor, Tesla’s Model 3, goes for about 44,000 euros ($48,520) in Europe.
The ID.3 went on display ahead of the Frankfurt Motor Show on Monday. Volkswagen is also revealing a new logo; both moves are aimed at underlining the company’s transformation since its 2015 diesel scandal, in which the company was caught using software to cheat on emissions testing and paid more than 30 billion euros ($33 billion) in fines and penalties. The company is positioning itself as younger and more oriented toward digital services and zero local emissions electric driving.
The company touts the ID.3 as a historic vehicle, the third chapter in the company’s history following the Beetle, which became a symbol of postwar German prosperity, and the Golf, of which Volkswagen has sold more than 35 million since 1974.
Volkswagen will start selling it in Europe next year, while in the United States it will first launch an electric SUV at an as-yet unspecified date.
The German company is deploying massive financial and manufacturing capabilities to make a success of its electric cars, saying it will have invested 30 billion euros in this area by 2023. It has sunk 1.2 billion euros into a factory in Zwickau in eastern Germany to make the ID.3, the first of eight electriccar plants worldwide including one in Chattanooga, Tennessee. The company, which sold 10.8 million vehicles last year, aims for 40 per cent of its sales to be electrics by 2030.
Analysts warn that the industry could be saddled with slow-selling products that would undermine their earnings in a weakening global car market. Electrics were only 1.8 per cent of the European market through the first six months of the year.
That’s because the launch of electric cars is so far mainly driven by regulation, not consumers. Above all, companies are rushing to make electric cars to meet tighter rules on carbon emissions and pollutants, particularly in the European Union and China.
The EU has new limits on emissions of carbon dioxide, the main greenhouse gas blamed for global warming, that will kick in fully in 2021 to comply with the Paris climate accord. Cars will have to produce no more than 95 grams of CO2 per kilometre, the equivalent of requiring mileage of 66 miles per gallon under U.S. measurements.
Failure to comply means a fine for every gram of C02 over the limit per car. In practice, that means each electric car sold could be worth more than 10,000 euros ($11,000) in avoided fines, according to Ferdinand Dudenhoeffer, direct of the CAR-Centre for Automotive Research at the University of Duisburg-Essen in Germany.
China, a major market for German carmakers, is also pushing for lower-emission vehicles.
Regulatory pressure for electric uptake is less certain in the U.S., where the Trump administration has sought to relax standards set by the Obama administration.
So far, electrics are most popular in wealthier countries with per capita incomes over 40,000 euros ($44,100) a year, such as Norway, Sweden and Switzerland.
In poorer countries, electrics are nowhere to be seen.
Just 293 were sold in Slovakia and 315 last year in Greece.
Incentives play a big role. In Norway, where electrics were over 30 per cent of the market last year, incentives amount to 11,600 euros in tax breaks.
Finding a place to charge is another issue.